The South African Rand (ZAR) faces a challenging environment, trading near a four-month low against the US Dollar (USD) at around R19.1. The South African economy faces ongoing challenges from struggling state-owned entities managing critical infrastructure like railways, ports, and power. These concerns are compounded by the approaching election, which injects political uncertainty into the economic outlook. Further pressuring the ZAR, South Africa’s inflation ticked up to 5.3% in January, deviating from the South African Reserve Bank’s target range. This may lead to the bank delaying interest rate cuts, hindering economic growth prospects.
However, the ZAR finds some reprieve from a weakening USD. The US Dollar Index fell below 104 on the back of lacklustre economic data and dovish comments from Federal Reserve officials. This suggests a potential pause in the US interest rate hikes, which could dampen the USD’s appeal and offer some support to the ZAR.
4-Hour Technical Analysis:
The 4-hour chart shows that the USDZAR price action currently trades at R19.045254, exhibiting initial weakness to start the week. The price recently broke below the key moving averages [20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line)], indicating a potential bearish bias. However, the downward-sloping 20-SMA trades above the upward-sloping 50-SMA and 100-SMA, suggesting underlying bullish momentum struggling to break through.
The 20-SMA’s downward slope, positioned above the upward-sloping 50-SMA and 100-SMA, reinforces this bearish sentiment. Furthermore, the RSI, now at 38.47, underscores the selling pressure as it dips below the mid-point of 50.00. In the near term, Short-term trading opportunities could arise towards the initial support at the 50.00% Fibonacci retracement level (R18.97469) should the bears sustain a push below the 100-SMA-supported 38.20% Fibonacci retracement level. A successful break below the initial support on significant volume would likely bring the 61.80% Fibonacci retracement level at R18.87648 within reach of the bears in the short term.
However, failure to sustain a push below the 38.20% Fibonacci retracement level could leave a retracement towards the 23.60% Fibonacci retracement level (R19.19443) in the significant supply zone firmly in play. A confirmed break above the initial resistance could likely bring the R19.27473 and the last swing high of R19.39086 firmly into play.
Summary
The overall market sentiment surrounding the USDZAR is cautious. The South African economy faces headwinds, while the US Dollar’s future trajectory remains uncertain. While the technical picture remains unclear, the prevailing bearish fundamentals suggest that the path of least resistance for the USDZAR lies to the downside. A sustained break below the 38.20% Fibonacci level and significant volume could pave the way for a move towards the 61.80% level (R18.87648).
Sources: TradingView, Trading Economics, MarketScreener, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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